Survival of the quickest

November 7, 20115 Comments

Markets react much quicker than they used to

 I’ve come to three conclusions about current market patterns. First, the length of many cycles including some of the seasonal patterns may be shortening due to current levels of volatility. Next, chart trend patterns and technical targets are reaching completion much faster. Lastly, fundamental factors, while still important, matter a bit less than they did even just five years ago. For these three reasons, I have adjusted my timeframes surrounding trading strategies of late.  I am attempting to trade my favored sectors and securities with an eye on a faster exit and often a lower price target than in the past. One example of my willingness to leave some upside on the table for the next guy (to reduce my risk of being caught in a difficult to predict selloff) is my recent decision to sell gold.

 

 

Why I’m selling gold

 

After gold hit $1600 in September, I posted here (and mentioned on BNN) that I felt it was still in an uptrend despite the drop, and would probably rally to near $1800. At the time of this writing, the spot price of gold is about $1770. That’s pretty close to my $1800 target. I sold gold equity holdings last week for the portfolios I manage.

Looking at the longer trend, gold has been trading in a bullish trend channel for 2 years. Recently, it approached (but did not quite reach) the top of that trend channel-see chart above. Sure, perhaps it has a little more upside, but I view this trade as an opportunity to take profit and look for a future entry date if  and when it sells off over the winter. Seasonally, gold tends to peak near this time of the year – and as mentioned above, things seem to work faster these days.

Perhaps a contrarian sign of gold becoming too popular was the announcement by the Royal Canadian Mint of a new gold bullion ETR. I am NOT buying this issue. Here’s why: New issue buyers will see their purchase close near the end of the month. As mentioned above, we are likely approaching a trend-channel peak on the gold market pattern for the next while. It may be a great time to issue a gold ETR, but perhaps not as great a time to buy it. Next, from what I’ve seen there is a juicy 2% issue cost to pay stockbrokers and the banking group to sell the issue. This may be a pretty quick way to experience an immediate 2% deterioration from the underlying Net Asset Value (NAV). I would prefer to wait until it becomes a liquid security on the TSX before trading this issue. Once the issue becomes liquid and trading on the market,  I will happily trade it–at the appropriate time, of course!

Keith on BNN Market Call

I’m on BNN Market call this Wednesday November 7th at 1:30pm answering viewers questions about large cap equities and ETF’s from a technical analysis perspective.

5 Comments

  • Re: gold has been trading in a bullish trend channel for 2 years….. hasn t it been in one for about 10 yrs?

    Reply
    • Gold began a long termed uptrend in 2002, but the tightly defined trend channel began early 2009.

      Reply
  • Hi Kieth
    It was nice watching your show. Will you short gold corp or ABX now

    Many thanks

    Reply
    • Omar–I dont short —but sometimes I use the Horizons inverse ETF’s. I think its unwise to short gold or gold stocks or go inverse at this time. I sold based on the approach of a trend-channel top–but please understand that the trend for gold is still very bullish in a longer time frame. So my plan is to re-enter upon a test of the trendline (near 1700). This may never happen, but I’m OK with that. Its dangerous to short an uptrend. Its never dangerous to take a profit!

      Reply

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